Sahara works on plan B; talks for London, New York hotels on but Subrata Roy unwilling to sell

At current valuations—which is 30% higher than when the hotels were acquired—Sahara will not only be able to pay off loans from Bank of China, which financed the original acquisitions.

NEW DELHI: Even as the Sahara group negotiates with potential buyers such as the Sultan of Brunei and the Poonawallas who are keen to get their hands on trophy hotels in New York and London, it is simultaneously working on an alternative plan to refinance debt as its jailed chairman Subrata Roy is said to be not too keen to sell the beleagured group's crown jewels.

At current valuations—which is 30% higher than when the hotels were acquired—Sahara will not only be able to pay off loans from Bank of China, which financed the original acquisitions, but also raise money to secure interim bail for its chairman who has been in jail since March for failing to abide by a Supreme Court order to refund investors around Rs 24,000 crore via market regulator Sebi.

In a response to a questionnaire sent by ET, a spokesman for Sahara said the company has received thousands of letters that it should not sell the two most iconic hotels-—Grosvenor House, London and Hotel Plaza, New York. "If we sell the above, we or any other Indian can never get this opportunity again," he said. The spokesman also said: "Discussions, negotiations are moving very slow because prospect (ive) buyers are reluctant and not comfortable to pay advance or give loans, etc. or spend for valuation and due diligence also, because the group's founder chairman is in jail."

Sahara needs to pay Rs 10,000 crore (Rs 5,000 crore in cash and the rest through a bank guarantee) to ensure Roy is granted interim bail.

The Sahara spokesman added that since the group has already paid 93% of the investors, who had subscribed to debentures, further payment will amount to a double payment towards one liability.

"Please note that Sebi has yet to do the verification of refunds, after which, we are sure that this money will come back to Sahara," he said.

Sahara's position is that it has refunded investors, but Sebi and the apex court have refused to buy this argument.

The three overseas hotels—Grosvenor House Hotel in London and The Plaza and Dream Downtown Hotel in New York—are currently mortgaged to Bank of China through complex financing deals.

According to a submission by Sahara in court on June 4, the combined value of the three properties has risen 13% since they were bought, based on valuation reports prepared by property consultancies CBRE and JLL at the instance of the Chinese bank. Sahara expects the sale value of these properties to be 30.5% higher than their purchase cost.

A banker with a foreign bank explained that such deals happen frequently in the West, though the Sahara proposition is a bit complex.

In case of a refinancing, the two sets of lenders—the old as well as the new financier—and Sahara will enter into a tripartite agreement.

The new lender or lenders will pay BOC money that Sahara owes it, and in return BOC will release the mortgage.

The new lender will then issue an advance based on the current market valuation of the properties. "Of course, the new bank will have concerns about the repayment of the loan, but it could deduct the interest component while giving out the advances," he said.

Representatives of the Bank of China were not immediately available for comment.

On Wednesday, ET reported that Sahara is in talks with the Poonawalla family as well as an investor group linked to the Qatari royal family and Sultan Hassanal Bolkiah of Brunei for selling the hotel assets. Poonawallas have made an offer of £550 million to Sahara for Grosvenor House hotel in London.

The group is also believed to have also got offers from the other buyers in the region of £600-650 million for the asset.

The valuation report by JLL dated February 26, 2014 values Grosvenor House at £516 million or $879 million. Another report by CBRE dated October 27, 2013 values The Plaza at $592 million and the one dated October 29, 2013 values Dream Downtown Hotel at $252 million. Sahara has submitted in court that it expects the final sales value to be higher than the valuation figures—£645 million or $1,099 million for Grosvenor House, $635 million for The Plaza and $252 million for Dream Downtown.

This would value the three assets at $1,986 million or Rs 11,916 crore (atRs 60 to a dollar).

According to Akshay Kulkarni, regional director-hospitality, South & Southeast Asia at Cushman & Wakefield recapitalisation or revaluation of debt is a common route to raise capital in the hotels business.